VCRM and VSDM outrun their benchmarks: First anniversary, world-class performance
Product News
|December 16, 2025
VCRM and VSDM outrun their benchmarks: First anniversary, world-class performance
Having reached their one-year anniversaries, Vanguard’s two actively managed municipal bond ETFs—Vanguard Core Tax-Exempt Bond ETF (VCRM) and Vanguard Short Duration Tax-Exempt Bond ETF (VSDM)—have done more than navigate the market turbulence of 2025. They’ve thrived, each delivering more than 100 basis points of net-of-fees outperformance over their benchmarks over trailing twelve-month and year-to-date return periods (as of November 30, 2025). Unsurprisingly, such results have placed both products among the top performing funds and ETFs of their respective Morningstar peer groups. The result: Both funds have delivered strong peer- and benchmark-relative performances, demonstrating how active management can succeed in a market that remains highly fragmented and research-intensive. Together, the ETFs now manage more than $1 billion in assets,1 reflecting sustained investor appetite for tax-exempt income solutions from Vanguard in a challenging municipal landscape.
Since inception, both funds have outpaced their S&P AMT‑free municipal benchmarks, with VCRM ahead of the broad index and VSDM beating the 0–7‑year index. The managers attribute results to a consistent credit, carry, convexity approach.
For credit, that means fundamental security selection for spread and upside price potential. For carry, it means curve-aware positioning to capture extra price return that can occur as a bond nears appreciation, and especially a bond that is purchased at a discount. Convexity refers to changes in duration, and therefore price, as interest rates change and calls become more or less likely, depending on the direction of interest rates. Many municipal bonds contain the right for issuers to call them early at designated times.
Managers must also be nimble in trading through volatile episodes, such as April’s liquidity shock. In a 2025 market defined by falling short-term interest rates, higher long-term rates, and record supply, those active levers proved decisive.
About the funds
VCRM
The ETF is designed as a core municipal allocation for investors seeking broad diversification in the tax‑exempt market. It can serve as the anchor muni sleeve in a taxable investor’s portfolio, complementing equities or taxable bonds by providing income exempt from federal income taxes and potential duration ballast over a full cycle.
Most municipal ETFs have historically been segmented by duration (short, intermediate, long). VCRM’s all-curve design in an actively managed municipal ETF wrapper offers uncommonly found breadth in muni exposure by including the long end of the curve. In the municipal market, the longest maturities persistently offer the best tax-equivalent yields compared with taxable bonds, and they may offer greater potential for alpha based on coupon and call selection. This alpha lever has acted as a tailwind in 2025 with several substantial yield curve shifts.
For active managers, avoiding potential problems is as important as finding bonds with extra value.
Senior Portfolio Manager Stephen McFee offers some examples of how funds navigated the past year: “Putting theory to practice—as yields rose in 2025, we secured a position in a bond issued by the University of Houston (UofH), at a 3% coupon and a maturity date of 2047. At the same time, we avoided a District of Columbia (DC) income tax-backed bond at a 4% coupon, maturing in 2039 but callable in 2029. Both bonds performed positively as yields declined later in 2025; however, the UofH bond outperformed the DC bond by roughly four percent. Why? As yields declined below the DC’s coupon level of 4%, its early callability limited further price appreciation above par, weighed down by the gravity of its (likely) upcoming retirement.” |
Steve Mcfee
Senior Portfolio Manager, Municipals
Performance history
As of November 30, 2025.
Total returns2 for period ended November 30, 2025
| VCRM | Year-to-date | 1-year | Since inception (November 19, 2024) |
|---|---|---|---|
| Net asset value (NAV) return 3 | 4.91% | 3.61% | 4.45% |
| Market price return4 | 4.85% | 3.33% | 4.54% |
| S&P Broad AMT-Free Municipal Bond Index | 3.76% | 2.48% | N/A |
The performance data shown represent past performance, which is not a guarantee of future results. Investment returns and principal value will fluctuate, so investors’ shares, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
VSDM
This ETF is intended for investors who want tax‑exempt income with lower interest‑rate sensitivity. This could benefit investors seeking these characteristics as a standalone or hoping to control/balance overall duration paired with a longer-term option like VCRM.
VSDM can serve as a defensive muni allocation in rising‑rate or volatile environments or as an alternative for short‑term reserves while still offering diversification benefits and some yield pickup versus money markets.
Portfolio Manager Adam Ferguson explains how the team has found opportunities in even smaller corners of the market:
“While the fund’s short duration profile prioritizes stability, we can also uncover alpha at the front end of the curve by allocating to bonds offering structural spread5 like housing and “hard put”6 securities, and through credit selection to bonds with undervalued fundamentals and upside. As an example of the latter, earlier this year, we purchased bonds issued by the New Jersey City University West Campus Student Housing Project. It was a position that many initial investors likely avoided due to its “B” rating, but we determined the market was underappreciating the consistent revenue stream that supported the bond. And while VSDM maintains a high-quality profile (78% single-A or higher), we decided this opportunity offered a highly favorable risk-adjusted return profile. Since purchase, our holdings in the issuer have gained an average return of over 11%. This is just one example of how we seek outperformance from many sources within a diversified portfolio.”
Adam Ferguson
CFA, Municipal Portfolio Manager
Performance history
As of November 30, 2025.
Total returns2 for period ended November 30, 2025
| VSDM | Year-to-date | 1-year | Since inception (November 19, 2024) |
|---|---|---|---|
| Net asset value (NAV) return3 | 5.02% | 4.67% | 4.93% |
| Market price return4 | 5.01% | 4.51% | 4.96% |
| S&P Broad AMT-Free Municipal Bond Index | 4.01% | 3.65% | N/A |
The performance data shown represent past performance, which is not a guarantee of future results. Investment returns and principal value will fluctuate, so investors’ shares, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
1 Vanguard, as of December 5, 2025.
2 Total returns are calculated based on NAV and market price for the stated periods and assume reinvestment of dividends and capital gains.
3 NAV return: Reflects the fund’s net asset value performance, excluding brokerage commissions and bid-ask spreads.
4 Market price return: Based on the official closing price on the exchange and may differ from NAV returns.
5 Structural spread refers to additional yield or spread that certain securities offer due to non-credit features embedded in their structure, rather than due to credit risk alone.
6 A “hard put” gives the bond holder an unconditional right to sell the bond back to the issuer (or a third-party guarantor) at predetermined intervals and prices.
Notes:
For more information about Vanguard funds or Vanguard ETFs, visit advisors.vanguard.com or call 800-997-2798 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.
Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
All investing is subject to risk, which may result in loss of principal. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account.
There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. It is possible that tax-managed funds will not meet their objective of being tax-efficient.
Investments in bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer’s ability to make payments.
Municipal bond fund distributions, including any market discount recognized by the Fund's investments, may be taxable as ordinary income or capital gains. A majority of the income dividends that you receive from the Fund are expected to be exempt from federal income taxes. However, a portion of the Fund’s distributions may be subject to federal, state, or local income taxes or the federal alternative minimum tax. You should consult your own tax advisor with respect to any particular U.S. or non-U.S. tax consequences of your investment in the Fund.
Diversification does not ensure a profit or protect against a loss.
The information contained herein does not constitute tax advice and cannot be used by any person to avoid tax penalties that may be imposed under the Internal Revenue Code. Each person should consult an independent tax advisor about his/her individual situation before investing in any fund or ETF.
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